For centuries, the farm-to-table operation wasn’t a culinary or social movement; it was a simple fact of every meal. People grew their own food, and that was that.
In time, things changed, and the American food system became one that included several steps—and often thousands of miles—between farm and table. But in the last few decades, the system reversed itself. Many credit Alice Waters for pioneering the modern farm-to-table movement when she opened Chez Panisse in Berkeley, California, in 1971, featuring seasonal and locally sourced fare as well as marketing support for its farm partners.
Nearly 45 years later, a large number of restaurants—everything from fine dining to fast food—have followed suit. As consumers increase their demand for fresh, local, organic, and overall “clean” ingredients, operators are scrutinizing their purchasing practices and supply chain more than they have in the past.
All restaurants face external pressures—unpredictable weather, rising labor costs, outbreaks like last year’s bout of avian flu. But within the limited-service sector, brands both small and large—as well as new and old—face their own challenges when it comes to efficiently sourcing the best ingredients.
“Everybody in the industry is in transition 100 percent of the time. … Just because you’ve been successful with something doesn’t mean you’ll be successful forever,” says Bruce Reinstein, president of Consolidated Concepts, a purchasing partner specializing in multiunit brands. “The days of putting a menu together for the year and forgetting about it is just not going to be done [anymore].” He adds that now is the time for flexibility and innovation from a culinary standpoint.
In recent years, operators have faced a slew of pressures related to weather (the four-year drought in California, snowy winters impeding delivery trucks), market volatility, and yo-yoing fuel prices. Meanwhile, rising wages have left operators eager to keep purchasing costs low.
At the same time, Reinstein says, consumers have increased their demand for healthier foods and produce while decreasing the amount of animal protein on their plates. The change, he says, is fortunate for operators given the shortages of beef, turkey, and eggs in recent years.
David Liesenfelt, president of California-based produce procurement company Fresh Concepts, says demand has evolved within the produce industry, too. For about 30 years, iceberg, romaine, and mixed greens reigned supreme, he says. Now specialty items are getting all the attention.
“Everybody is trying to be unique—I would say that would be the No. 1 thing—trying to bring in items that are new and interesting and not just the same produce items that have always been served traditionally,” Liesenfelt says. “The hottest item right now has been Brussels sprouts, and we’ve seen a lot of farmers jump into growing Brussels sprouts simply because there’s such a high demand for that product. And that’s the nature of produce lately. When there’s an item that gets hot, everybody jumps into it.”
But matching supply to demand can be tricky. Liesenfelt says that a few years ago, baby kale was the produce darling, and thanks to a short growth cycle, farmers were able to grow enough. Avocados have also seen a significant uptick in consumer appeal, but because trees take about three years to grow, they are more difficult to source quickly. For this reason, he says, Fresh Concepts works with its clients to identify the items they want to contract with growers. He adds that one of the benefits of working in produce is that, for the most part, supply can be fluid with farmers adapting to market changes. If necessary, land can be purchased and repurposed to grow a specific crop.
Although suppliers shift to accommodate restaurants and consumers, the field is constantly evolving, leading some brands, like Kentucky-based Fazoli’s, to work with outside advisers in addition to their suppliers and distributors.
“I also work with a third-party consultant to really ensure that we’re staying out in front of some of the opportunities that arise with weather,” says Blaine Adams, vice president of supply chain for the brand. “For instance, durum wheat last year was a challenge … and we were able to get out in front of [it] and speak with Zerega, who is our pasta supplier.” He adds that these relationships help minimize the impact of shortages.
SpenDifference is a supply chain support firm that counts restaurants like McAlister’s, Moe’s Southwestern Grill, and Focus Brands among its client roster. President and CEO Maryanne Rose founded the company after decades working supply management and purchasing on the restaurant side. Rose says she knows firsthand that it can be a struggle for executives at emerging and midsize chains to access the tools and expertise needed to understand the supply chain.
“The bigger you are, the more leverage you have in the marketplace to manage your risks. … Smaller companies can’t really go into the commodity markets and book, so they kind of have to go up and down with the costs,” Rose says. In addition to consulting services, SpenDifference also helps clients negotiate costs. “The supply chain is just not as easy as it used to be. It requires much more sophistication.”
In addition to tapping a third-party consultant as a resource, Fazoli’s also works directly with its suppliers and forms long-term strategic partnerships. Each year, it sends projections for ingredients that are then communicated with the farmers. The relationship works both ways as the suppliers also approach the restaurant to stay ahead of changes.
For example, last year when the price for chicken tenders was at a five-year high, chicken processor Brakebush approached Fazoli’s with an alternative.
“Don’t just come in and present a price increase to us. Have a backup plan,” Adams says. “Most if not all of our suppliers in our system are very proactive. Not only do they come in if there’s a warrant to increase costs … [but] they also present alternatives.”
The need for such alternatives seems to be inversely proportional to a brand’s size: Larger chains have hefty purchasing power, which helps them keep prices low, whereas smaller brands often have less bargaining clout. For these operators, menu flexibility can protect them from the unexpected.
“The field of risk management can give a lot of restaurants—big and small—some tools,” says Russell Walker, clinical associate professor at the Kellogg School of Management at Northwestern University. He offers substituting collard greens for kale as an example of menu flexibility, but adds that it can be more complex than a simple swap.
“Substitution can be an ongoing activity. Instead of serving beef burgers, we’re going to have beef-mushroom burgers. There’s an ability to even manipulate the ingredients in the food items so you build that inherent protection,” Walker says.
Substitutions, or even menu additions, become more difficult as restaurant chains expand. Walker points to when McDonald’s rolled out a line of smoothies in the summer of 2010 as an example. The company had to cut its special promotions and events surrounding the launch due to inadequate fruit supply.
The fast-food giant offers other cautionary tales. While Consolidated Concept’s Reinstein heralds menu flexibility as a viable way to weather unexpected supply changes, he warns that too much differentiation can dilute a brand’s core identity, as it did at McDonald’s.
“What they were doing is saying, ‘We’re going to fight the fast casuals.’ And they brought in smoothies, and they brought in salads, and they started to branch out probably to a point where the consumer was a little bit confused,” Reinstein says. He adds that McDonald’s decision to offer its popular breakfast items all day was “one of the most intelligent decisions” it could have made because it distinguished the brand through existing products.
Reconfiguring the purchasing process and supply chain is not an impossible task for larger operators, but it is often a costly one that takes time.
“It’s like moving a giant cargo ship; you can’t just turn it on a dime. It’s going to be a slow turn. If you don’t start now, in 10 years you’re going to be sitting in the back wondering how the market passed you by,” says Michael Berger, managing partner of Falls Church, Virginia–based Elevation Burger. Despite these challenges, he is confident that larger brands “will figure it out.”
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Berger’s optimism has support. Elevation Burger, which has 36 domestic and 21 international locations, built in the ability to source antibiotic-, added hormone–, and pesticide-free beef from the beginning. Right out of the gate, Elevation Burger worked directly with growers and producers. “We basically had to grab hold of the entire supply chain starting at store No. 1,” Berger says. Through projections and futures contracts, the growers and ranchers have grown with the brand.
So far the better-burger concept has been able to scale the operation; it even introduced organic chicken earlier this year. Because higher-priced meats have always had a permanent place in the budget, Berger says, Elevation was able to balance those premiums by sourcing other items from larger manufacturers, such as Heinz for condiments.
Similarly, Washington, D.C.–based Mediterranean fast casual Cava Grill has a direct relationship with its producers. CEO Brett Schulman says Cava has a very open-minded distribution partner that allowed the brand to build relationships with growers from the outset. He adds that since Cava has its own line of consumer-packaged goods, it uses the restaurant space as a place to showcase other local brands.
“It gets to be a real win-win relationship when we can give enough scale to a local grower where they don’t have to be concerned about the end demand for their inventory,” Schulman says.
For example, Cava sources banana peppers from a local farmer, delivers them to D.C. pickling company Gordy’s Pickle Jar, and later picks up the pickled banana peppers. Schulman says this purchasing process has grown to the point that Cava can contract the banana peppers, thus removing the inventory volatility from the grower.
“I grew up in a world of centralized distribution and one-stop economies of scale, whereas we think the value added today and in the future is: Can you use technology and information to flip that on its head and still do it cost-effectively enough?” Schulman says. “The challenge for us is how we can curate that quality of ingredients and bring it to our consumer at an affordable price, and we think that’s where the value is.”
Consolidating supply chains make for a more streamlined purchasing process, but it is not without its associated risks. Brands that rely on a single producer for each item could find themselves seriously crippled by unforeseen circumstances.
Northwestern’s Walker says vertical integration—consolidating the supply line by working with small producers—might give brands a competitive edge with pricing, but it also removes a traditional fail-safe.
“If your business is predicated on one supplier in particular, or a small number, then you are exposed to their operational failures,” Walker says. “In a situation like that, I’d think you’d want to have redundancy. Buy from multiple suppliers, especially from things that cannot be quickly reproduced.”
Smaller, emerging concepts might have something to learn about sourcing redundancy from larger chains, but the legacy brands should take note of fast casuals’ more intimate approach to purchasing. Throughout 2015, a number of brands, from McDonald’s and Chick-fil-A to Taco Bell and Papa John’s, vowed to source cleaner ingredients. The smaller, more nimble operators have provided a rough blueprint for them to do just that.
At a recent Natural Resources Defense Council meeting, Berger says, an executive from a leading fast-casual brand said that it was concepts like Elevation Burger that push the supply chain to the next level and allow the larger chains to follow suit.
“There’s a handful of these bigger brands that are really thinking that, and they’re watching. I was surprised to learn that they had an eye on us because it really does help grow the market,” Berger says. He adds that it is already happening with brands like Carl’s Jr. and Hardee’s introducing the All-Natural Burger and Wendy’s partnering with the Honest Tea. Furthermore, he says, the organic movement will gain momentum once it has federal policy and big industry players backing it up. In 2008, Wal-Mart turned the tide when it switched to milk from cows that were not treated with artificial hormones. Berger says that as such a major force in retail, Wal-Mart is largely responsible for the decrease in hormone-treated milk across foodservice. He’s curious to see how the retail giant’s foray into organic goods will influence grocers and restaurants.
Organic is just one of many labels with a perceived health halo: there’s also clean, natural, local, sustainable, antibiotic-free, and GMO-free. While the criteria for what constitutes “organic” is clearly structured and enforced by the U.S. Department of Agriculture, Berger says, other descriptors are less defined.
“You need to avoid getting the [Federal Trade Commission] angry through truth in labeling, but short of that there’s not a ton of regulation around the terms in food,” Berger says. “We wanted to be able to source with confidence that our product was legitimately coming to the store with every single one of those attributes, and organic was really the only way to guarantee that.”
As far as which labels will stick and become part of brands’ purchasing practices, the experts are divided. Berger says organic; Reinstein says local, even though geographically dense regions with short growing seasons would be trickier; and Liesenfelt says a marriage between organic and local would be ideal.
SpenDifference’s Rose thinks the movement to remove chemicals and antibiotics will stick rather than organic, given the high cost of the latter. Regardless, she says, the industry needs an improved vocabulary for the subject matter.
“Whatever it is, the consumer wants it, so we can’t pretend they don’t. The term I use with one of my customers is wholesome. What is your wholesome food strategy?” Rose says. She adds that because “wholesome” can mean different things to different people, she plans to work with clients to more clearly define what the word encompasses.
Beyond clarifying the various labels, operators must consider how much descriptors like organic or local are worth. Some smaller limited-service brands are able to keep those premium costs in check. Elevation Burger built higher beef prices into its business model, and Berger says prices are never more than 10 percent higher than those of primary competitors. New York City fast casual Dig Inn keeps cost low by cutting out the middleman and working directly with the farmers; it even built a commissary to store and repackage raw materials.
For larger brands, particularly those that have become successful based on a value message, changing the purchasing process could prove costly. Rose, Berger, and Walker all offered Panera as an example of a major player changing its supply chain, though Panera has always had higher prices than traditional chains.
Regardless of how customers reconfigure the value they place on quality and cost, experts all say telling the story of the food—and making it an honest one at that—will be paramount. Consumers today are much more informed in their food choices than they used to be, and one of the most important things a company can do is be transparent in the way it goes about purchasing and sourcing ingredients.
